Given how low volatility has been lately, investors may be considering being long the VelocityShares Daily Inverse VIX ST ETN (XIV), which aims to deliver the daily inverse return of the VXX, or shorting VXX.

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For periods longer than a day, being long XIV is not equivalent to shorting VXX. Macro Risk Advisors' Pravit Chintawongvanich explains:

...The cumulative P&L of shorting $1mm VXX at the beginning of 2017 vs. buying $1mm XIV. Since VXX decays over time to zero, the maximum we can make from shorting it is only 100%. In other words, our short vol exposure declines as VXX declines, meaning we need to short more of it at some point if we want to maintain the exposure. If we are unlucky and VXX goes up after we short it, our short exposure could grow to potentially unlimited size relative to our capital base – meaning we need to stop out at some point.

Deutsche Bank's Rocky Fishman thinks the days the VIX's low is behind us and sees higher volatility in the coming months. He recommends buying July VIX call spreads:

For a core hedge against an upward trend in volatility, we suggest: Buy Jul-17 VIX 17-23 call spreads for 0.45 (indic. intraday mid, ref. fut. 13.23). Call spreads can often have milder carry than outright calls, yet similar mark-to-market performance in a small vol spike, while giving up upside in a major vol spike.

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